One of the best ways to find great deals on properties as a real estate investor is to target pre-foreclosure homes. A pre-foreclosure property is one where the homeowner has fallen behind on their mortgage payments and received a Notice of Default (NOD) from their lender.
After receiving the NOD, homeowners typically have 90 days to get caught up on payments before the lender officially starts the foreclosure process. This creates a window of opportunity for savvy investors to approach the owners, offer to buy their home, and potentially get the property for below market value.
Why Homeowners Sell During Pre-Foreclosure There are several reasons why homeowners choose to sell during the pre-foreclosure period rather than go through a full foreclosure:
Avoid foreclosure and protect their credit: A foreclosure can severely damage a homeowner’s credit score for years, making it difficult to get approved for loans, credit cards, rent apartments, etc. Selling allows them to avoid having a foreclosure on their record.
Need to sell quickly before foreclosure: Once the bank initiates foreclosure proceedings, the homeowner is on a tight timeline to move out. Selling pre-foreclosure gives them more time and control over the process.
Are “upside down” and owe more than home is worth: When housing values decline, some owners get stuck owing more on their mortgage than the home’s value. Selling pre-foreclosure may allow them to get out from under that underwater mortgage.
Get out from under mortgage debt: Some owners choose to sell pre-foreclosure because they simply cannot afford the mortgage payments any longer after job loss, income reduction, divorce, etc. Selling allows them to eliminate that debt burden.
How to Find Pre-Foreclosure Leads If you want to start investing in pre-foreclosure properties, one of the biggest challenges is generating a consistent pipeline of leads. Here are some of the top strategies:
- Search public NOD records at your county records office and get updated listings regularly.
- Use pre-foreclosure listing services that compile leads from multiple counties into a searchable online database.
- Hire driving teams or bird dogs to go out and physically identify pre-foreclosure properties in your target areas by looking for signs like un-kept yards, vacant homes, etc.
- Network and build relationships with realtors, real estate attorneys, trustees, and others handling foreclosures to get access to leads.
- Send direct mail campaigns with your offer and marketing materials to homeowners identified as being in pre-foreclosure status.
- Reaching Out to Pre-Foreclosure Leads Once you identify pre-foreclosure prospects, it’s important to approach them with sensitivity. Many are embarrassed about their situation or unsure of what options they have. Make it clear that you are offering solutions by purchasing their property quickly for cash.
- Explain the pre-foreclosure process, timeline, and consequences if they don’t get caught up with payments. Present your offer as a way to avoid foreclosure and reduce or eliminate their mortgage debt. However, don’t be too pushy – becoming their friend and advisor is often more effective than high-pressure sales tactics.
Have a clear exit strategy planned for each pre-foreclosure property you pursue, whether -that’s renting out, renovating and re-selling quickly, or buying and holding as a rental. With diligent lead generation and the right marketing approach, pursuing pre-foreclosure properties can be an extremely lucrative real estate investing strategy.
